Stocks Reversing Lower into Final Hour on Rising Global Growth Fears, Rising Eurozone Debt Angst, Less Financial/Tech Sector Optimism

Broad Market Tone:

• Advance/Decline Line: Lower
  
• Sector Performance: Most Sectors Declining
  
• Volume: Below Average
  
• Market Leading Stocks: Underperforming
  

Equity Investor Angst:

• VIX 22.21 +1.09%
  
• ISE Sentiment Index 82.0 -7.87%
  
• Total Put/Call 1.26 +6.78%
  
• NYSE Arms 1.03 -48.03%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 119.18 +1.56%
  
• European Financial Sector CDS Index 290.81 +.74%
  
• Western Europe Sovereign Debt CDS Index 302.35 +1.25%
  
• Emerging Market CDS Index 309.69 +2.26%
  
• 2-Year Swap Spread 36.5 -2.0 basis points
  
• TED Spread 37.5 -.5 basis point
  
• 3-Month EUR/USD Cross-Currency Basis Swap -51.25 -1.75 basis points
  

Economic Gauges:

• 3-Month T-Bill Yield .09% unch.
  
• Yield Curve 147.0 -2 basis points
  
• China Import Iron Ore Spot $135.10/Metric Tonne -.59%
  
• Citi US Economic Surprise Index -19.40 +3.6 points
  
• 10-Year TIPS Spread 2.11 -4 basis points
  

Overseas Futures:

• Nikkei Futures: Indicating a -40 open in Japan
• DAX Futures: Indicating -22 open in Germany
  

Portfolio:

• Higher: On gains in my Biotech sector longs and index hedges
  
• Disclosed Trades: Added to my (IWM)/(QQQ) hedges, then covered some of them
  
• Market Exposure: 50% Net Long

BOTTOM LINE: Today's overall market action is bearish as the S&P 500 reverses morning gains and trades near session lows as it tests its early-March lows on rising Eurozone debt angst, high energy prices, rising global growth fears, less financial/tech sector optimism, technical selling and more shorting. On the positive side, Internet, Education and Restaurant shares are rising on the day. The Transports are also holding up relatively well. Oil is falling -.4% and Gold is down -.2%. The Spain sovereign cds is down -1.7% to 537.33 bps and the France sovereign cds is down -.99% to 215.0 bps. On the negative side, Coal, Alt Energy, Oil Tanker, Ag, Steel, Networking, Retail, Semi, Disk Drive and I-Banking shares are under meaningful pressure, falling more than -1.25%. Cyclical shares are underperforming. Tech and financial shares have also been heavy throughout the day. Copper is down -1.3%, Lumber is down -1.3% and the UBS-Bloomberg Ag Spot Index is gaining +1.1%. Major Asian indices fell around -2.25% overnight, led lower by a -3.2% decline in Hong Kong(-9.4% in 2 weeks). Major European indices are falling around -.5%, led lower by a -1.4% decline in Spain. Spain is now down -22.9% ytd and at the lowest level since June 2003. The Bloomberg European Bank/Financial Services Index is down -.9% and has declined -21.9% in less than 2 months. The Germany sovereign cds is gaining +.5% to 96.33 bps, the Italy sovereign cds is rising +.99% to 506.66 bps, the Portugal sovereign cds is gaining +2.9% to 1,137.85 bps, the Ireland sovereign cds is gaining +1.9% to 665.99 bps(+11.3% in 5 days), the UK sovereign cds is gaining +2.3% to 72.66 bps, the Japan sovereign cds is rising +2.5% to 107.88 bps, the China sovereign cds is gaining +2.6% to 132.33 bps(+11.6% in 5 days), the Brazil sovereign cds is gaining +3.3% to 154.15 bps and the Russia sovereign cds is gaining +.99% to 236.99 bps(+14.0% in 5 days). Moreover, the European Investment Grade CDS Index is rising +2.1% to 177.93 bps(+13.1% in 5 days). US Rail Traffic continues to soften. The Philly Fed ADS Real-Time Business Conditions Index continues to trend lower from its late-December peak. Moreover, the Citi US Economic Surprise Index has fallen back to early-Oct. levels. Lumber is -4.0% since its Dec. 29th high despite improving sentiment towards homebuilders and the broad equity rally ytd. Moreover, the weekly MBA Home Purchase Applications Index has been around the same level since May 2010 despite expectations for a strong spring home selling season. The Baltic Dry Index has plunged around -50.0% from its Oct. 14th high and is now down around -30.0% ytd. China Iron Ore Spot has plunged -25.5% since Sept. 7th of last year. Shanghai Copper Inventories have risen +487.0% ytd. Overall, recent credit gauge deterioration is a big worry with most key sovereign cds breaking out technically. I still believe the level of complacency among US investors regarding the rapidly deteriorating situation in Europe is fairly high. The 10Y T-Note continues to trade too well, with the yield only 9 bps from its record low of 1.67%. Copper continues to trade poorly. Moreover, the CRB Commodities Index is now technically in a bear market, having declined -21.4% since May 2nd of last year. Moreover, the euro currency continues to trade poorly and is accelerating its move towards its Jan. low. I do not expect this low to hold over the coming months. I still don’t hear any viable “solutions” to the European debt crisis and it is really beginning to bite Asia now, which will further pressure exports from the region and raise the odds of more sovereign/bank downgrades. Vague talk of “growth” initiatives doesn’t mean that much given what that normally means in Europe. US stocks remain extremely resilient, especially given the carnage in Asia overnight. For the recent equity advance to regain traction, I would expect to see further European credit gauge improvement, a further subsiding of hard-landing fears in key emerging markets, a rising 10-year yield, better volume, stable-to-lower energy prices, a US "fiscal cliff" solution and higher-quality stock market leadership. I expect US stocks to trade modestly lower into the close from current levels on rising Eurozone debt angst, rising global growth fears, more shorting, technical selling and less financial sector optimism.

Today's Headlines

Bloomberg:

• ECB Stops Loans to Some Greek Banks as Draghi Talks Exit. The European Central Bank said it will temporarily stop lending to some Greek banks to limit its risk as President Mario Draghi signaled the ECB won’t compromise on key principles to keep Greece in the euro area. The Frankfurt-based ECB said today it will push the responsibility for lending to some Greek financial institutions onto the Greek central bank until they have sufficiently boosted their capital. “Once the recapitalization process is finalized, and we expect this to be finalized soon, the banks will regain access to standard Eurosystem refinancing operations,” the ECB said in an emailed statement. The move comes after Draghi acknowledged for the first time that Greece could leave the monetary union. While the bank’s “strong preference” is that Greece stays in the 17-nation euro area, the ECB will continue to preserve “the integrity of our balance sheet,” he said in a speech in Frankfurt today. “A Greek exit was seen as an absurdity up to now,” said Thomas Costerg, an economist at Standard Chartered Bank in London. “It is gradually becoming the main scenario. The ECB is prioritizing its balance sheet over monetary-union geography.” Greece faces a fresh election on June 17 that may boost parties opposed to the conditions of its international bailouts, raising the specter of its exit.
• ECB Said to Stick to Current Crisis Stance as Tools Reviewed. The European Central Bank is conducting a comprehensive review of all its policy tools and has no immediate plans to increase stimulus even as market tensions mount, two euro-area officials said. The review, mandated by the central bank’s six-member Executive Board, intends to assess the effectiveness of its measures, including the bond-buying program and long-term refinancing operations, and is scheduled to be completed in June or July, said the officials, who spoke on condition of anonymity because the deliberations are private. A third official said the ECB may not consider taking any further policy action until July, and that the bank sees current market tensions as a way of focusing politicians’ minds on reform efforts.
  
• Euro-Area Inflation Slowed in April, March Exports Declined. European inflation slowed last month and exports dropped in March as the euro region’s spreading fiscal crisis undermined the economy and consumer demand. The inflation rate in the 17-nation euro area fell to 2.6 percent from 2.7 percent in March, the European Union’s statistics office in Luxembourg said today. That’s in line with an initial estimate published on April 30. Euro-region exports fell 0.9 percent in March from the previous month, when they rose 2.2 percent, it said in a separate statement. Euro-area imports dropped 1.1 percent from February, when they rose 3.2 percent, today’s report showed.
• Traders Boost German Default Protection on Europe Crisis Woes. Investors are amassing record amounts of insurance on German government debt on concern Europe’s biggest economy will suffer from the region’s worsening crisis. The net amount of credit-default swaps outstanding on German bonds surged for a fourth week, climbing by $260 million in the period through May 11 to $20.5 billion, according to the Depository Trust & Clearing Corp. That’s up from $16.1 billion last June. Germany is the largest contributor to Europe’s bailout packages for Greece and a collapse of that nation’s economy and its possible exit from the euro area may weigh heavily on Chancellor Angela Merkel’s administration. “A euro breakup is going to be a burden on Germany as well as on any of the others,” said Elisabeth Afseth, an analyst at Investec Bank Plc in London. “The alternative is a large scale bailout, which would obviously also add to German liabilities. It’s hard to see a very positive outcome in any case there.” The cost of insuring German debt is soaring, even as its bond yields fall. Credit-default swaps on Germany jumped 10 basis points this week to a four-month high of 98, signaling worsening perceptions of credit quality. The contracts cost 67 basis points March 19. Swaps on Spain soared as much as seven basis points to a record 553, before falling two basis points to 544. Contracts on Italy climbed eight basis points to 510.25 and swaps on Ireland rose 8.5 basis points to 663, both four-month highs. “If you get a Greek exit or threat of such, it will be more difficult for Ireland to come back to the market,” Afseth said. “If Greece leaves, a precedent has been set for a country leaving the single currency and the issue of contagion is quite real.” The cost of insuring European corporate and financial debt also rose today. The Markit iTraxx Crossover Index of swaps linked to 50 companies with mostly high-yield credit ratings increased 16 basis points to 751. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings advanced for a seventh day, climbing 6.25 basis points to 180.25. Both are the highest since Jan. 9. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers rose 6.5 basis points to 295.5 and the subordinated index jumped 11 to 486.
• European Stocks Extend Four-Month Low Amid Greek Concern. European stocks dropped for a third day, to their lowest level this year, amid growing concern Greece will be forced to leave the euro area. National Bank of Greece SA tumbled 13 percent as the country’s central bank chief said citizens had withdrawn as much as 700 million euros ($891 million) since the May 6 election. Italy’s Banca Carige SpA (CRG) fell to its lowest since at least 1995. Cie. Financiere Richemont SA rose as earnings topped estimates. The Stoxx Europe 600 Index (SXXP) slipped 0.6 percent to 244.4 at the close of trading, having earlier advanced as much as 0.3 percent and lost 1.4 percent. The gauge has tumbled 10 percent from this year’s peak on March 16 amid continued political uncertainty in Greece, entering a so-called correction.
• Bullard Says Labor Policy Is Key to Cut Joblessness. Federal Reserve Bank of St. Louis President James Bullard said fiscal policies are needed to reduce the 8.1 percent U.S. unemployment rate and additional asset purchases by the Fed, or quantitative easing, would risk a surge in inflation. “It may be better to focus on labor market policies to directly address unemployment instead of taking further risks with monetary policy,” Bullard said in Louisville, Kentucky. “If anything, the committee may be trying to do too much with monetary policy, risking monetary instability for the U.S. and the global economy.” “The U.S. macroeconomic data have been stronger than expected as of last autumn,” Bullard said to business people and community leaders in a presentation hosted by the St. Louis Fed. “The main risk is that the committee will, as it has in the past, overcommit to the ultra-easy policy. The policy has been appropriate so far, but could reignite a 1970s-type experience globally if pursued too aggressively.” Bullard also said near-zero interest rates could be creating “distortions” in the economy, including “punishing savers.”
• Facebook's(FB) Saverin May Save $67 Million on U.S. Tax Bill by Renouncing Citizenship. Facebook Inc. (FB) co-founder Eduardo Saverin will save at least $67 million in federal income taxes by dropping U.S. citizenship, according to a Bloomberg analysis of the company’s stock price. Those savings will keep growing if Facebook’s shares increase.
• Several on FOMC Said Easing May Be Needed on Faltering Economy. Several Federal Reserve policy makers said a loss of momentum in growth or increased risks to their economic outlook could warrant additional action to keep the recovery on track, minutes of their last meeting showed. “Several members indicated that additional monetary policy accommodation could be necessary if the economic recovery lost momentum or the downside risks to the forecast became great enough,” according to minutes of the Federal Open Market Committee’s April 24-25 meeting released today in Washington. Central bankers last month affirmed their plan to hold interest rates near zero at least through late 2014 as they sought to push down an unemployment rate that has stayed above 8 percent for more than three years.
• Housing Starts Join U.S. Factories Topping Forecasts. Starts rose 2.6 percent to a 717,000 annual rate from March’s revised 699,000 pace that was stronger than previously reported, Commerce Department figures showed today in Washington. Industrial production climbed 1.1 percent, the most since December 2010, the Federal Reserve said.

Wall Street Journal:

• High-Yield Market Feeling Euro Fears, CDS Spreads Widen. Investors in the European high-yield bond market vented their euro-zone crisis fears Wednesday by buying protection against a default of their companies, but avoided selling their cash bond holdings so far, traders said.
• Facebook(FB) IPO: Insiders Cashing Out. Some of Facebook Inc.'s biggest holders are selling as much as $3.8 billion in extra shares in Friday's initial public offering, a move that could catch the attention of investors buying into the deal. Facebook said Wednesday that it will boost the size of its IPO by 25%, or about 100 million shares, as some of the venture capitalists and early investors decided to sell as much as half of their stakes in the company. Funds run by Goldman Sachs Group and Tiger Global Management, for example, now plan to sell as much as 50% of their stakes.
• China Finds Shrinking Appetite for Loans. When growth in China's economy slows, government leaders typically call on state-owned banks to make loans to rev up activity. But that tactic may not work this time.
• What End of Bush Tax Cuts Means for You. Bischoff: Unless Congress takes action, it's not just the "rich" who will see higher tax bills.

CNBC.com

• Copper Hits 4-Month Low on Greece Turmoil, Dollar. Copper fell to a four-month low on Wednesday, extending losses to a fourth session, as investors recoiled from risky assets fearing the impact of Greece's possible exit from the euro zone and a slowdown in big metals consumer China's economy.
• Supreme Court to Take Up Obamacare's Higher Taxes. While U.S. Supreme Court watchers focus on the controversial insurance requirement in President Barack Obama's healthcare law, lesser known is that the court's ruling next month will also decide the fate of billions of dollars in new taxes.
• Apple(AAPL) to Boost Screen Size on Next iPhone.
  

Business Insider:

• The Next Debt Ceiling Fight Will Be Orders Of Magnitude Worse Than The Last One.
• Chart of the Day: Goldman Shows What Happens If We Fly Off The Fiscal Cliff.
  

Zero Hedge:

• Greece: Before and After.
• European Banks Battered As Reality Sets In. (graphs)
  

New York Times:

• In Scrutiny of JPMorgan(JPM) Loss, Bigger Questions Left Unanswered. The Securities and Exchange Commission and the Federal Bureau of Investigation are looking into JPMorgan Chase’s trading debacle — and if you think anything is going to come of that, well, I’m pretty sure that JPMorgan has some derivatives it would love to sell you. A serious investigation is still necessary.

NY Post:

• The Man Who Beached 'Moby Iksil'. Call him Boaz. A 38-year-old hotshot trader and chess master named Boaz Weinstein was the driving force behind the harpooning of the “London Whale,” hedge-fund industry sources told The Post. Weinstein, who runs Saba Capital Management, helped shine light on the credit default swap index trade that blew a $2.3 billion hole in JPMorgan Chase’s balance sheet.
  

Reuters:

• Greece's Anti-Bailout SYRIZA Leftists Lead in Poll. Greece's radical leftist SYRIZA party is consolidating gains and on track to becoming the biggest group in parliament when voters return to the polls next month, while pro-bailout parties continue to suffer, an opinion poll showed on Wednesday. The VPRC survey polled Greeks over the May 10-14 period as party leaders struggled to cobble together a coalition following an inconclusive May 6 election. Leaders admitted failure on Tuesday, and Greece is set to return to the ballot on June 17, according to a party source.SYRIZA, which placed second in the election this month with nearly 17 percent of the vote, now commands support from 20.3 percent of voters, the poll showed.The conservative New Democracy's support slipped sharply to 14.2 percent while backing for the Socialist PASOK party dipped to 10.9 percent, both well below levels seen in a previous poll conducted after the election.

AP:

• Rajoy Warns Spain Faces Lock-Out From Markets. Spain's prime minister warned Wednesday that the country faced the danger of being locked out of international markets as investors continued to fret about the future of the euro and Greece's place in the 17-country eurozone. "Right now there is a serious risk that (investors) will not lend us money or they will do so at an astronomical rate," Mariano Rajoy told Spanish lawmakers.

Telegraph:

• Eurozone is 'tearing itself apart', says Mervyn King. True, but the UK's problems are as intractable as ever.
• Debt Crisis: Live. Greece names senior judge Panagiotis Pikramenos as caretaker Prime Minister and sets a date for a second election after leaders fail to form government, while the Bank of England has said the UK economy won't recover until 2014.
• IIF's Charles Dallara says Greek exit 'somewhere between catastrophic and armageddon'. The damage to the rest of Europe from Greece leaving the euro would be "somewhere between catastrophic and Armageddon", the chief negotiator for the body representing private sector holders of Greek bonds said on Wednesday.

Valor Economico:

• Brazil's government may transfer portfolios of bad loans from state-owned banks to Empresa Gestora de Ativos, a government-controlled institution, as it seeks to boost credit in the Latin American country.
  

Kathimerini:

• Greece's privatization agency will not proceed with state-asset sales until a new government is formed.
  

Economic Times:

• Hong Kong Shares Post Biggest Loss in Six Month, China Slides. The Hang Seng index posted its biggest loss in six months on Wednesday after mainland media reported flat loan growth for the country's "Big Four" state-owned banks in the first two weeks of May, fanning fears about the slowing Chinese economy. The Hang Seng Index ended down 3.2 percent at 19,259.83, the lowest close since Jan. 16 and its biggest drop in a day since Nov. 10, when it had slumped 5.2 percent. The benchmark broke below its 200-day moving average, currently at 19,831, which is likely to become a significant level for the benchmark with a possible break on either side setting the direction for the market. In the mainland Chinese markets, the CSI300 Index lost 1.6 percent, while the Shanghai Composite Index fell 1.2 percent.

CRI English:

• Shanghai Commercial Property Sales Drop 16% y/y by Area. Shanghai developers sold 4.4m sq.m. of commercial real estate and housing in Jan.-April, citing the city's statistics bureau. Home sales dropped 8% y/y to 3.9m sq.m.

Bear Radar

Style Underperformer:

• Large-Cap Growth -.60%

Sector Underperformers:

• 1) Coal -3.50% 2) Steel -3.0% 3) Agriculture -1.41%

Stocks Falling on Unusual Volume:

• CHU, SNP, MCP, JCP, ANF, ACTV, TNGO, CCJ, CALL, AKAM, TYC, LUK, TAXI, PETD, ASEI, LRCX, FRAN, CNQR, INFA, SVVC, CVV, HCII, HIBB, PANL, NVLS, SNDK, SYNC, LAMR, ACAT, BMC, SDT, INFA, RGR, ITRI, LXU and SPLS
  

Stocks With Unusual Put Option Activity:

• 1) JCP 2) EWA 3) AMAT 4) DELL 5) KGC
  

Stocks With Most Negative News Mentions:

• 1) JPM 2) KLAC 3) ANF 4) LRCX 5) PCX
  

Charts:

• ETFs Falling on Unusual Volume
• Stocks Falling on Unusual Volume
  

Wednesday Watch

Evening Headlines
Bloomberg:

• Greek President Told Banks Anxious as Deposits Pulled. Greek President Karolos Papoulias was told by the central bank chief this week that financial institutions are becoming anxious about their prospects as Greeks pull out cash after the inconclusive May 6 elections. Central bank head George Provopoulos told Papoulias that Greeks have withdrawn as much as 700 million euros ($891 million) and the situation could worsen, according to the transcript of the president’s meeting with party leaders on May 14 that was published yesterday. “Provopoulos told me that of course there’s no panic but there’s great fear which can evolve into panic,” he said. Greece’s future in the euro has been thrown into doubt by the political standoff, forcing the president to call for new elections yesterday. German Finance Minister Wolfgang Schaeuble called the next vote a referendum on whether Greece exits the euro, a move that would leave lenders to its government, businesses and households unsure of recouping their money. The risk of a run on Greek banks is “a very serious problem,” Yannis Ioannides, professor of economics at Tufts University in Massachusetts, told Bloomberg Television. He said the European Central Bank needs to guarantee deposits held by the region’s lenders to guard against contagion. “That’s the only way to kill a bank run: not words but deeds.”
• Europe Must Face Ugly Reality of Greek Exit from Euro. A Greek exit from the euro area has the potential to be the European Union’s most economically and politically destructive event of a generation. Unfortunately, Europe has reached the point where it must prepare for such an outcome. Whether Greeks want it or not, circumstances could soon force their country to return to the drachma. Europe’s leaders, as Luxembourg Prime Minister Jean-Claude Juncker hinted, might extend Greece’s deadlines to meet the budget targets required for rescue money, but they won’t provide emergency financing to a government that refuses austerity measures. Without Europe’s help, Greece’s government (whoever ends up leading it) faces a dilemma: Cut spending even more than under the austerity program, or default on its debts and print a new currency to pay its bills.
  
• Germany Demands That ECB Pays Back EFSF Guarantee, FTD Reports. Germany and the European Financial Stability Facility has demanded that the European Central Bank pay back a 35 billion-euro ($45 billion) guarantee to the EFSF, Financial Times Deutschland said in a preview of a story that will run tomorrow, without saying where it got the information. The ECB received the guarantee from the EFSF to cover risks during the Greek government debt swap in March and wants to keep it for as long as 10 months because of outstanding so-called selective default bonds, the newspaper reported.
• Brazil Builders Plunge as PDG Profit Tumble Deepens Slump. MRV Engenharia (MRVE3) & Participacoes and PDG Realty (PDGR3) SA Empreendimentos & Participacoes led a plunge among Brazilian real-estate companies after reporting first-quarter profit that fell more than forecast. MRV lost 15 percent to 9.43 reais at the close in Sao Paulo, the biggest decline on the BM&FBovespa Real Estate Index, which retreated 4 percent. PDG, the country’s largest homebuilder by sales, fell 9.8 percent to 3.67 reais, making it the worst performer this year on the benchmark Bovespa index. PDG and MRV joined Rossi Residencial SA (RSID3), Brookfield Incorporacoes SA (BISA3) and Gafisa SA (GFSA3) in reporting lower profit or net losses last quarter. Homebuilders overextended themselves after 7.5 percent economic growth in 2010 spurred construction, creating a property glut as expansion slowed, said Luiz Roberto Calado, a vice president at the Brazilian Finance Managers Association. “They basically overestimated demand,” Calado, who published a book in 2010 on Brazilian real estate, said by phone from Sao Paulo. “They started buying land and creating lots of projects, but family income just hasn’t risen as much as housing prices. Even with credit, houses and apartments don’t seem affordable anymore.”
• Goldman(GS), Merrill E-Mails Show Naked Shorting, Filing Says. Goldman Sachs Group Inc. (GS) and Merrill Lynch & Co. employees discussed helping naked short-sales by market-maker clients in e-mails the banks sought to keep secret, including one in which a Merrill official told another to ignore compliance rules, Overstock.com Inc. (OSTK) said in a court filing. The online retailer accused Merrill, now part of Bank of America Corp., and Goldman Sachs of manipulating its stock from 2005 to 2007, causing its shares to fall. Clearing operations at the banks intentionally failed to locate and deliver borrowed shares for clients shorting stocks, including two traders who were fined and suspended from the industry, Overstock’s attorneys said in court filings earlier this year.
• JC Penney(JCP) Reports First-Quarter Loss Amid Sales Slump. J.C. Penney Co. (JCP), the department-store chain led by Apple Inc.’s (AAPL) former stores chief, reported a first- quarter loss and said it will discontinue its quarterly dividend after sales fell more than anticipated. The shares declined. The loss of $163 million, or 75 cents a share, compared with profit of $64 million, or 28 cents, a year earlier, the Plano, Texas-based company said today in a statement. Sales slumped 20 percent to $3.15 billion, missing the $3.43 billion average of 16 estimates compiled by Bloomberg. The shares fell 13 percent to $29 at 5:53 p.m. in New York. At the close, J.C. Penney had dropped 5.2 percent this year.
• Romney Focuses on U.S. Debt in Attacking Obama for Slow Recovery. Mitt Romney decried the ballooning of the federal debt and said it “threatens what it means to be an American,” as he argued that government deficits are hurting the nation’s economic recovery and President Barack Obama has made the situation worse. “America counted on President Obama to rescue the economy, tame the deficit and help create jobs,” the presumed Republican presidential nominee told supporters today in Des Moines, Iowa. Criticizing the $831 billion stimulus package enacted shortly into Obama’s term and other administration actions, Romney said the president “bailed out the public sector, gave billions of your dollars to companies of his friends and added almost as much debt to the country as all the prior presidents combined.” As a consequence, “we are now enduring the most tepid recovery in modern history,” Romney said.
• China Power Output Shows Deeper Economic Slump: Chart of the Day. China's economic slowdown may be worse than forecast as growth in electricity generation, a leading indicator of gdp, was almost non-existent last month. Power generation rose .7% in April from a year earlier, down from 7.2% in March, the National Bureau of Statistics said on its website. Industrial production in the world's second-largest economy, which accounts for more than 70% of electricity use, rose at the slowest pace in about three years last month. "Power production is one of the coincident indicators of the economy," said Michael Parker, an analyst in Hong Kong at Sanford C. Bernstein & Co. "To see the number so sharply down, I think the problem of macro issues comes into question."
• JPMorgan’s Specific Trades Weren’t Monitored, Regulator Says. JPMorgan Chase & Co. (JPM)’s individual trades that led to a $2 billion loss weren’t monitored by the Office of the Comptroller of the Currency, which said it didn’t expect to be notified about the positions. The job of the OCC, which oversees U.S. national banks including JPMorgan Chase Bank N.A., is to oversee wider risk- management policies and limits and to alert company management when it sees activities that range far from expectations, said Bryan Hubbard, an OCC spokesman.
• China's Hong Kong Home-Buying Influx Wanes, Midland Says. Mainland Chinese investors accounted for a smaller percentage of Hong Kong’s new home sales for a second quarter as the country’s economy slowed and local buyers returned to the market, according to Midland Holdings Ltd. (1200) Mainland purchasers made up 36.8 percent of all new home sales by value in the first quarter, from 37.9 percent in the previous three months, Hong Kong’s biggest publicly traded realtor said in an e-mail yesterday. The figure reached 53.9 percent in the third quarter last year, Midland said.

Wall Street Journal:

• More Real-Estate Loans Default in Europe. European commercial-real-estate markets are struggling with a sharp increase in problem mortgages just as more European countries slip back into recession. A growing number of landlords, hit with falling rents and occupancies, are defaulting on loans, and it is happening not just in the most-troubled parts of Europe but in big centers like London and Frankfurt. Values already are down nearly 20% since their 2007 peak across Europe, according to CBRE Group Inc. Meantime, billions of euros of commercial mortgages are coming due, but little capital is available for refinancing.
• China Big Four Banks Barely Issue New Yuan Loans In 1H May - Report. China's biggest four banks barely issued any new yuan loans in the first two weeks of May, extending the country's weak credit growth last month, the state-run Shanghai Securities News reported Wednesday, citing an unnamed source. The four banks--Industrial & Commercial Bank of China Ltd. 1398.HK -2.08% (601398.SH), China Construction Bank Corp. 0939.HK -2.20% (601939.SH), Bank of China Ltd. 3988.HK -2.35% (601988.SH) and Agricultural Bank of China Ltd. 1288.HK -0.60% (601288.SH)--usually account for 30% of new yuan loans issued by China's whole banking system. The rare and unusually dismal performance by the banks is expected to fuel concerns that despite Beijing's efforts to step up credit easing, corporate demand for loans remains too weak to reverse the trend.
• Regulator Laments Role of Largest Mortgage Lenders. The U.S. mortgage industry has become too concentrated in the hands of a few large players, a leading housing regulator said Tuesday, expressing a concern many small lenders are voicing as regulators consider how to overhaul the nation’s mortgage system.
• JPMorgan's(JPM) $2 Billion-Plus Loss Came On Three-Legged Trade. The complex web of trades that saddled J.P. Morgan Chase & Co. (JPM) with at least $2 billion in losses had three key components, according to people familiar with the bank's strategy. Now, rival traders, seeking to reap gains from J.P. Morgan's losses, are scurrying to guess which parts the bank is unwinding, and how.
• Loeb's Third Point Reveals Apple(AAPL), Google(GOOG), Cisco(CSCO) Stakes. Third Point LLC, the hedge fund that recently won a proxy battle for further control of embattled Internet firm Yahoo Inc., has turned its attention to other large tech firms recently.
• Tom Frost: The Big Danger With Big Banks. Taxpayer safety nets such as the FDIC should be available only to banks that are in the loan business, not those in the investment business.

Barron's:

• Yahoo!(YHOO): Einhorn Dumps It, Stands Pat on (AAPL); Trims (DELL), (MSFT).

MarketWatch:

• Asia Stocks Dive as Greek Political Crisis Deepens. Asia’s stock markets fell sharply Wednesday, with commodity firms among those hardest hit after news that Greece’s political impasse would force new elections in the country. Hong Kong’s Hang Seng Index was among the region’s worst performers Wednesday, tumbling 2.4%, with Sullivan citing the Hong Kong market’s relatively high liquidity. Australia’s S&P/ASX 200 wasn’t far behind with a 1.8% drop, as weak commodity prices sent major mining names lower.
• Filings Show 45% of China Companies See Slowdown.
  

Business Insider:

• Elizabeth Warren Is Getting Destroyed More For Calling Herself A Native American.
• 3 Reasons Why You Should Expect France's Wealthy Elite To Move To London.
• Attention Facebook(FB) Investors: This (GM) Ad Cancellation Is Big, Bad News.
  

Zero Hedge:

• Of Whitney Tilson's $345MM In AUM, $104MM Is In Call Options, $24MM Is In Warrants.
• Majority of Neo-Normal Greek Cops Vote Neo-Nazi. In a somewhat stunning revelation, especially after our earlier note on the Golden Dawn leader's 'position' on the issues of the day, GreekReporter notes via the news paper To Vima, that more than half of all police officers in Greece voted for pro-Nazi party Golden Dawn in the elections of May 6th. It's not really for us to judge (well maybe it is) but when some polling stations report Golden Dawn receiving 19-24% of the votes, things are going from the dismal to the horrific (and potentially chaotic) very fast.
• Market Deja Deja Deja... Oh Forget It! (graphs)
  

CNBC:

• Facebook(FB) to Increase IPO Deal Size by 25%: Source.
• High-Speed Trading: Profit - and Danger - in Milliseconds.

IBD:

• Ulta Beauty(ULTA) Wows Customers With Trendy New Brands.
  

NY Times:

• Needy States Use Housing Aid Cash to Plug Budgets. Hundreds of millions of dollars meant to provide a little relief to the nation’s struggling homeowners is being diverted to plug state budget gaps.

Forbes

• Activist Ackman's Pershing Square Still Betting On JC Penney(JCP), Canadian Pacific(CP).

CNN:

• Obama Lists Millions in Assets in 2011. The White House released documents Tuesday that show President Barack Obama and the first family hold assets valued at between $2.6 million and $8.3 million. The disclosure forms, required by the Ethics in Government Act, show the president's largest asset, by far, is U.S. debt in the form of Treasury notes and bills. In total, the president has between $1.6 million and $6.3 million invested in Treasury debt.

USA Today:

• U.S. Energy Independence Is No Longer Just A Pipe Dream.

Reuters:

• Chicago braces for violence at NATO summit. Chicago police, who have a reputation for dealing toughly with protesters, will be prepared for the worst with new riot gear, including "sound cannon", if demonstrators at the NATO summit get out of line this weekend. America's third-largest city and President Barack Obama's hometown has never hosted anything like the meeting starting on Sunday, which will draw representatives from some 50 countries, including leaders of the 28 members of the military alliance.
• PIMCO: Euro zone to 'evolve into smaller' entity. Pacific Investment Management Co., which manages the world's largest bond fund, sees a high probability that the euro zone "will evolve into a smaller and less imperfect entity." "Simply put, the status quo is no longer an option for Europe over the three- to five-year horizon," PIMCO Chief Executive Officer Mohamed El-Erian wrote in a report outlining the Newport Beach, California-based company's medium-term economic outlook. "The higher probability outcome is that the eurozone will evolve into a smaller and less imperfect entity - namely, a closer political union of countries with more similar conditions."
• Sina Corp(SINA) Could See Further Losses Due to Weibo - CEO. Sina Corp could post further losses due to its investment in microblogging platform, Weibo, its Chief Executive Officer Charles Chao said on Wednesday. Sina Corp reported quarterly results that beat Wall Street's targets after advertising revenue shot up 9 percent despite a weak Chinese market, propelling its shares up 7 percent in after hours.

Financial Times:

• Bankers' Talks On Curbing Rating Agencies. Up to 20 of Europe’s top banks will on Wednesday discuss a plan to foil the dominance of the much criticised big three credit agencies at a private meeting of finance directors in Frankfurt. Some of the banks want to change the culture of information disclosure to the likes of Standard & Poor’s, Moody’s and Fitch to level the playing field for potential new entrants.
• JPMorgan(JPM) loss exposes derivatives dangers. As JPMorgan reels from a complicated hedging strategy, one that misfired to the tune of at least $2.3bn in losses, derivatives-market participants worried about new rules on trading fear it will be harder to argue for more lenient treatment.
• US Bank CDS Hit Fresh 2012 Highs. Credit default swaps on major US banks, including JPMorgan Chase, hit fresh highs for the year on Tuesday as problems in Greece intensified. The cost of default protection on JPMorgan debt rose 8 basis points to 147, the highest level this year.

Telegraph:

• Italy's Banks Shaken as Economic Slump Deepens. As Greece erupts, Italy is moving into the eye of the storm. Its economy is contracting at speeds not seen since the depths of the slump in 2009 as draconian austerity bites, greatly increasing the risk of social revolt and a banking crisis. With the world's third largest debt after the US and Japan at €1.9 trillion (£1.18 trillion), it is big enough to bring the global financial system to its knees. It is also in the front line of contagion as the Greek crisis metastasizes. Yields on 10-year Italian debt jumped 16 points to 5.86pc on Tuesday after Italy's data agency said the country is sliding even into deeper recession, with GDP shrinking 0.8pc in the first quarter. Output is now 6pc below its peak in 2008. Italy has been trapped in perma-slump for a decade, the only major state to suffer a fall in real per capita income since 2000. Rising anger has led to a spate of violent attacks by terrorist groups over recent weeks, all too like the traumatic 'years of lead' in the late 1970s. The government is mulling use of troops to protect targets after anarchists shot the head of Ansaldo Nucleare last week and hurled petrol bombs at tax offices.
• Global Lenders Face 'Killer Losses' on Greek Debt. Foreign holders of €422bn of Greek debt were warned to brace themselves for "killer losses" as coalition talks in Athens collapsed, threatening Greece's future in the eurozone.

The Australian:

• IMF Jets In For Stress Tests On Australia's Big Four Banks. THE big four banks face increasing scrutiny from both the International Monetary Fund and the credit rating agencies as Europe's financial problems drive up offshore funding costs, just as domestic growth stutters. IMF officials arrived in Sydney this week for meetings with ANZ, Commonwealth Bank, National Australia Bank and Westpac.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are -2.50% to -1.0% on average.
• Asia Ex-Japan Investment Grade CDS Index 192.5 +2.5 basis points.
  
• Asia Pacific Sovereign CDS Index 149.50 -1.0 basis point.
  
• FTSE-100 futures -.75%.
  
• S&P 500 futures -.14%.
  
• NASDAQ 100 futures -.20%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (TGT)/1.00
• (DE)/2.53
• (SPLS)/.30
• (ANF)/.01
• (LTD)/.40
• (JACK)/.31
• (RRGB)/.66
• (CHS)/.30

Economic Releases
8:30 am EST

• Housing Starts for April are estimated to rise to 685K versus 654K in March.
• Building Permits for April are estimated to fall to 730K versus 747K in March.
  

9:15 am EST

• Industrial Production for April is estimated to rise +.6% versus unch. in March.
• Capacity Utilization for April is estimated to rise to 79.0% versus 78.6% in March.

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory build of +1,750,000 barrels versus a +3,652,000 barrel gain the prior week. Distillate supplies are estimated to rise by +150,000 barrels versus a -3,251,000 barrel decline the prior week. Gasoline supplies are expected to fall by -100,000 barrels versus a -2,613,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to rise +.5% versus a +.4% gain the prior week.
  

2:00 pm EST

• Minutes of FOMC Meeting
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The France/Germany Bond/Bund Auctions, Fed's Bullard speaking, 1Q Mortgage Delinquencies, 1Q MBA Mortgage Foreclosures, weekly MBA mortgage applications report, (NCR) investor day could also impact trading today.
  

BOTTOM LINE: Asian indices are sharply lower, weighed down by financial and commodity shares in the region. I expect US stocks to open lower and to maintain losses into the afternoon. The Portfolio is 50% net long heading into the day.

Stocks Falling into Final Hour on Rising Eurozone Debt Angst, Rising Global Growth Fears, Less Financial Sector Optimism, Technical Selling

Broad Market Tone:

• Advance/Decline Line: Slightly Higher
  
• Sector Performance: Mixed
  
• Volume: Below Average
  
• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• VIX 21.63 -1.10%
  
• ISE Sentiment Index 96.0 +24.68%
  
• Total Put/Call 1.12 -10.40%
  
• NYSE Arms 1.57 +18.64%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 116.95 +1.86%
  
• European Financial Sector CDS Index 288.29 +2.79%
  
• Western Europe Sovereign Debt CDS Index 298.42 +1.64%
  
• Emerging Market CDS Index 301.63 +4.72%
  
• 2-Year Swap Spread 38.5 +.5 basis point
  
• TED Spread 38.0 unch.
  
• 3-Month EUR/USD Cross-Currency Basis Swap -49.50 -1.5 basis points
  

Economic Gauges:

• 3-Month T-Bill Yield .09% unch.
  
• Yield Curve 149.0 -3 basis points
  
• China Import Iron Ore Spot $135.90/Metric Tonne -.59%
  
• Citi US Economic Surprise Index -23.0 +.4 point
  
• 10-Year TIPS Spread 2.15 +1 basis point
  

Overseas Futures:

• Nikkei Futures: Indicating a -40 open in Japan
• DAX Futures: Indicating -23 open in Germany
  

Portfolio:

• Slightly Higher: On gains in my Tech/Retail sector longs and index hedges
  
• Disclosed Trades: Added to my (IWM)/(QQQ) hedges, then covered some of them
  
• Market Exposure: 50% Net Long

BOTTOM LINE: Today's overall market action is bearish as the S&P 500 reverses morning gains and trades near session lows as it tests its early-March lows on rising Eurozone debt angst, high energy prices, rising global growth fears, technical selling and more shorting. On the positive side, Internet, Oil Tanker and Road & Rail shares are rising on the day. The Transports have outperformed throughout the day. Oil is falling -.93% and Gold is down -.8%. Weekly retail sales rose +3.1% this week versus a +2.6% gain the prior week, but they remain sluggish for a recovery. On the negative side, Coal, Energy, Alt Energy, Ag, Semi, Drug, Oil Service, Steel, Construction and Airline shares are under meaningful pressure, falling more than -1.25%. Cyclical shares are underperforming. Copper is down -1.6% and the UBS-Bloomberg Ag Spot Index is gaining +1.1%. Major Asian indices were mostly lower, led down by a -.81% decline in Japan. Major European indices are falling around -1.5%, led lower by a -2.6% decline in Italy. Italy is now down -11.8% ytd and down -22.2% in less than 2 months. As well, Spain is down another -1.6% today. Spain's IBEX is down -21.8% ytd and took out its March 2009 low today. The Bloomberg European Bank/Financial Services Index is down -2.0% today and down -22.0% in less than 2 months. The Germany sovereign cds is gaining +1.77% to 95.50 bps, the France sovereign cds is rising .62% to 216.17 bps, the Spain sovereign cds is rising +1.81% to 545.34 bps(all-time high), the Italy sovereign cds is rising +3.78% to 502.66 bps, the Ireland sovereign cds is gaining +4.0% to 655.17 bps, the Brazil sovereign cds is surging +2.4% to 144.01 bps, the Russia sovereign cds is gaining 3.8% to 234.14 bps and the China sovereign cds is gaining +6.4% to 129.83 bps. Moreover, the European Investment Grade CDS Index is rising +3.3% to 174.32 bps and the Italian/German 10Y Yld Spread is gaining +3.6% to 439.43 bps. US Rail Traffic continues to soften. The Philly Fed ADS Real-Time Business Conditions Index continues to trend lower from its late-December peak. Moreover, the Citi US Economic Surprise Index has fallen back to early-Oct. levels. Lumber is -3.0% since its Dec. 29th high despite improving sentiment towards homebuilders and the broad equity rally ytd. Moreover, the weekly MBA Home Purchase Applications Index has been around the same level since May 2010 despite expectations for a strong spring home selling season. The Baltic Dry Index has plunged around -50.0% from its Oct. 14th high and is now down around -30.0% ytd. China Iron Ore Spot has plunged -25.0% since Sept. 7th of last year. Shanghai Copper Inventories have risen +488.0% ytd. The recent intensification of the downturn in Eurozone economies raises the odds of further sovereign/bank downgrades. Overall, recent credit gauge deterioration is a big worry with most key sovereign cds breaking out technically. I still believe the level of complacency among US investors regarding the rapidly deteriorating situation in Europe is fairly high. Moreover, the 10Y T-Note continues to trade too well, with the yield only 10 bps from its record low of 1.67%. Copper continues to trade poorly and is breaking down from the range it has been trapped in since Jan. The CRB Commodities Index is now technically in a bear market, having declined -21.5% since May 2nd of last year. Moreover, the euro currency continues to trade poorly and is accelerating its move towards its Jan. low. I do not expect this low to hold over the coming months. It is looking increasingly likely that another intense escalation phase of the European debt crisis has already begun. I currently do not hear any “solutions” to the crisis that will prove anything other than very painful for the region’s economies and thus the global economy over the intermediate-term. While news out of the Eurozone was the main catalyst for today's stock reversal lower, I suspect that recent data out of China played a larger role than perceived. For the recent equity advance to regain traction, I would expect to see further European credit gauge improvement, a further subsiding of hard-landing fears in key emerging markets, a rising 10-year yield, better volume, stable-to-lower energy prices, a US "fiscal cliff" solution and higher-quality stock market leadership. I expect US stocks to trade modestly lower into the close from current levels on rising Eurozone debt angst, rising global growth fears, more shorting, technical selling and less financial sector optimism.

Today's Headlines

Bloomberg:

• Greek Vote Escalates Crisis as Schaeuble Raises Euro-Exit. Greece’s decision to return to the ballot box in the search for a government unleashed a hazardous new phase in Europe’s debt crisis, with German Finance Minister Wolfgang Schaeuble calling the vote a referendum on whether the country stays in the euro. Post-election attempts to form a ruling coalition in Athens broke down today after nine days, sending Greeks back to the polls next month with surveys giving the lead to an anti-bailout party that would tear up the conditions attached to 240 billion euros ($307 billion) of aid. “If Greece -- and this is the will of the great majority - - wants to stay in the euro, then they have to accept the conditions,” Schaeuble told reporters at a meeting of European finance ministers in Brussels. “Otherwise it isn’t possible. No responsible candidate can hide that from the electorate.” The euro tumbled to a four-month low, European stocks dropped and investors sought the safety of German bonds amid speculation that Greece would be forced out and pull other countries with it, doing untold damage to the European financial system. The Greek quagmire raised the tension for a meeting in Berlin tonight between German Chancellor Angela Merkel, the dominant figure in euro crisis management, and Francois Hollande, who took office as French president today in the first power shift to the Socialists in France since 1981.
• Schaeuble Says Greek Program Unnegotiable, Help Possible. German Finance Minister Wolfgang Schaeuble said the adjustment program set up to stabilize Greece’s debt isn’t debatable and is not being negotiated though bilateral measures can be taken to help the country. Euro-region finance ministers meeting in Brussels yesterday didn’t discuss whether the program’s “architecture” can be changed, Schaeuble told reporters after European Union finance ministers met today. “The fundamental question the second program for Greece is about -- namely to spare Greece’s financial system, as a part of the common European monetary union, access to financial markets for some time and at the same time help it to return to financial markets at some point in time on the basis of sustainable growth -- is agreed and not negotiable in its economic parts, and isn’t being negotiated,” he said. “If we can help with additional, bilateral measures, that’s an entirely different question.”
• European Stocks Retreat as Greece Will Hold New Election. European stocks dropped for a second day, pushing the Stoxx Europe 600 Index to its lowest level since December, as Greece called a new election after the country’s politicians failed to form a government. Banks (SXXP) posted the biggest contribution to the Stoxx 600’s decline. Julius Baer Group Ltd. (BAER) plunged 6.1 percent, its biggest slide in almost eight months, as revenue from assets under management fell in the first four months of the year. The Stoxx 600 retreated 0.7 percent to 245.76 at the close in London, extending its drop from this year’s peak on March 16 to 9.8 percent.
• Sovereign, Corporate Bond Risk Rises, Credit-Default Swaps Show. The cost of insuring against default on European sovereign and corporate debt rose, reversing an earlier decline, according to BNP Paribas SA. The Markit iTraxx SovX Western Europe Index of credit- default swaps on 15 governments climbed 3.5 basis points to 296.5 at 3:39 p.m. in London. Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings jumped 14.5 basis points to 730.5. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose 3.5 to 172.5. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers was up seven basis points at 287.5 and the subordinated index was 9.5 higher at 473.5.
• Hungary Default Swaps Gain for 8th Day as Greece Calls Elections. Hungary’s cost of insuring against default on government debt gained for an eighth day and the forint dropped as Greece headed for new elections, raising concern that Europe’s debt crisis will escalate. The country’s five-year credit-default swaps rose 3 basis points to 553 basis points by 5 p.m. in Budapest, the longest rising streak since November, according to data compiled by Bloomberg. The currency of Hungary, the European Union’s most indebted eastern member, retreated 0.4 percent to 293.4 per euro. That means a 1.5 percent loss in the past three days, the most in a similar period since March 29. Hungary’s benchmark 10-year bonds dropped, lifting yields 4 basis points to 8.34 percent, the highest since April 24.
• Spanish Bond Slump Risks LCH Margin Increase: Chart of the Day. Spanish government bonds risk incurring higher trading costs at LCH Clearnet Ltd. as their performance relative to Europe's safest assets deteriorates. The difference in yield between Spanish 10-year bonds and a benchmark of AAA rated euro-region sovereign debt is approaching 450 bps for the first time since the shared currency was created. LCH, Europe's biggest clearing house, increased the cost of trading Irish and Portuguese bonds by 15% when yield spreads for those securities climbed to similar levels.
• EU Ministers Reach Deal To Boost Bank Capital. European Union finance ministers agreed on a plan to force banks to hold more capital in a deal that gives the U.K. full powers to implement its so-called Vickers banking agenda. U.K. Chancellor of the Exchequer George Osborne said at a meeting of EU finance ministers in Brussels he won assurances from other nations that the U.K. will be able to follow through on its banking agenda, which will force large retail banks to hold more capital than the minimum international standards. That broke a deadlock reached two weeks ago, when 16 hours of talks left ministers divided on whether countries would need to seek permission when imposing extra loss buffers.
• U.S. Retail Sales Cool After Warm-Weather Spree: Economy. Retail sales rose in April at the slowest pace of the year as Americans took a break from a shopping spree induced by unseasonably warm weather in prior months and an earlier Easter holiday. The 0.1 percent gain followed a 0.7 percent increase in March, Commerce Department figures showed today in Washington. The April advance matched the median forecast in a Bloomberg News survey.
• Manufacturing in NY Region Rises More Than Forecast. The Federal Reserve Bank of New York’s general economic index increased to 17.1 this month from 6.6 in April. The median estimate in a survey of Bloomberg economists called for an increase to 9.
• Homebuilder Confidence in U.S. Climbs. The National Association of Home Builders/Wells Fargo index of builder confidence rose to 29, the highest since May 2007, a report from the Washington-based group showed today. The gauge exceeded the highest projection in a Bloomberg News survey in which the median estimate was 26. Readings below 50 mean more respondents said conditions were poor.

Wall Street Journal:

• Boehner Wants Cuts to Offset Debt-Ceiling Increase. House Speaker John Boehner (R., Ohio) will demand Tuesday that any increase in the government's borrowing limit be accompanied by spending cuts and other budget changes of greater size, according to excerpts of his prepared remarks. His comments, to be delivered in the afternoon at a Washington "fiscal summit" organized by the Peter G. Peterson Foundation, mark one of the first salvos delivered by Republican leaders this year on the fiscal scramble that is expected to take place after the November elections.
• Justice Department Opens JPMorgan(JPM) Inquiry. The Justice Department has opened an inquiry into J.P. Morgan Chase & Co.'s $2 billion-plus trading loss, according to a person familiar with the matter.
• Lagarde: Outcome of Greece Euro Exit Could be 'Quite Messy'. The consequences of Greece leaving the euro zone would be difficult to assess, but the situation could easily degenerate into turmoil, the head of the International Monetary Fund said Tuesday. "The spillover effects, the chain of consequences that could result from that [Greek euro exit] are very difficult to assess," Christine Lagarde told news station France24 in an interview. "We can certainly assume that it would be quite messy."
• Greek Depositors Withdrew $898 Million From Banks Monday. Greek depositors withdrew €700 million ($898 million) from local banks Monday, the country's president said, as he warned that the situation facing Greece's lenders was very difficult.

MarketWatch:

• Mexico, Brazil Stocks Fall; Real Hits 3-Year Low. Major Latin American stock markets fell Tuesday, with benchmark indexes in Mexico and Brazil extending recent losses and touching their lowest levels in at least three months.

CNBC.com:

• Whale Watch: Why Copying Big Investors Is 'Dangerous'.
• As Investors Fawn Over Facebook(FB), Poll Finds User Distrust, Apathy.

Zero Hedge:

• A Greek Affair To Remember And Mr. Hollande's Opus.
• Euro-Dumpfest Continues as LTRO Banks Implode.
• Santelli Explains Why A Broke California "Likes" A Hot Facebook(FB) IPO.
• Complete April and YTD Hedge Fund Performance Summary.
  

NY Post:

• Obama's Gay Marriage Decision Helped Raise $21M for Presidential Run In Just Days

Reuters:

• Hedge Funds Eye Further Profits From JPMorgan(JPM) Losses. Hedge funds are holding out for further gains from their bets against JPMorgan's massive position in U.S. credit derivatives, racking up tidy profits from a lucrative trade that could cost the U.S. bank more than $3 billion. Managers - some of them ex-employees of the biggest U.S. bank - started betting in credit derivative markets, including on an index of credit default swaps against its constituents, during the first quarter, believing JPMorgan's huge positions had created dislocations in the market which would disappear over time. Some of those funds are sticking with their positions just as the bank tries to unwind its trades, industry insiders say.
• ECB and Banks Brace for "Blockupy" Protest Chaos. The European Central Bank plans to hold its mid-month policy meeting early, move staff out of its headquarters and shift a farewell event for one of its board members out of town, all to avoid clashes with anti-capitalist 'Blockupy' protesters. 'Blockupy' activists angry at the way the financial crisis is affecting ordinary people are set to demonstrate in central Frankfurt from Wednesday to Saturday and have made the ECB and its building their central target.
• Copper at 4-Month Low as EU Concerns Mount. Copper hit a four-month low on Tuesday, shrugging off upbeat German growth data, as other EU economies contracted, the euro fell and concerns over slower growth in China and a political stalemate in Greece kept prices in check. Benchmark copper on the London Metal Exchange closed at $7,760, from a close of $7,775 on Monday. Earlier, the metal used in power and construction hit a session low of $7,732 a metric ton (1.1023 tons), its lowest since January 12.
• Home Depot(HD) Sales Miss Wall St Estimates. Home Depot Inc posted quarterly sales that fell short of Wall Street's heightened expectations on Tuesday after demand slowed in April following a jump in home improvement projects spurred by an unusually warm winter.

Financial Times:

• The State of the Eurozone, Credit Edition. Have you been wondering how Greece’s “new” bonds are doing? As in, the ones that were given to all those debtholders when they finally agreed — or were voted into by collective action clauses — the restructuring in March. Well, here they are:

Telegraph:

• This is How the Euro Ends - Not With a Whimper But a Bang. With Greece unable to form a government and therefore now set on new elections, how's this going to pan out? Very badly, is the almost certain answer.
• Appetiser cost of Greek exit is €155bn for Germany, France: trillions for meat course. Eric Dor's team at the IESEG School of Management in Lille has put together a table on the direct costs to Germany and France if Greece is pushed out of the euro.

Independent.ie:

• Largest Banks in America Cut Exposure to Ireland by Up to $1Bn. SOME of the largest banks in the world have cut their exposure to Ireland by almost a billion dollars since the start of the year, as big investors move away from this country. Latest filings in the US show Goldman Sachs and Bank of America cut the amounts they have invested in Irish-related securities by at least $800m (€622m) between the end of last year and March 31; while JP Morgan's Irish investments are now so small they are bundled in with Greece and Portugal.

The Australian:

• China Growth 'has slowed to a walk'. TROUBLE is looming. Even in the few days since last week's federal budget, some of its basic assumptions, particularly about Chinese growth, are looking shaky. Heavy-hitting economists in Beijing are now worrying that China's growth has already slowed to a walking pace at best, well beyond the Chinese government's intention to calm down earlier runaway expansion. "It has been a nice ride for Australia, a fantastic ride," says Patrick Chovanec, associate professor at the School of Economics and Management at Tsinghua, one of China's top universities. "I wouldn't blame anyone for riding that wave. But it's starting to putter out. Australia has been growing out of China's bubble, and it wasn't sustainable . . . we're starting to see what that looks like." A growing number of economists are stating that the 8.1 per cent year-on-year growth China's National Bureau of Statistics announced for the first quarter of this year was suspiciously rosy, even by the generally unreliable standards often ascribed to those statistics. The reason for widespread questioning about the 8.1 per cent to 7.4 per cent growth figure is the unusually wide range of other data that points to a much slower pace. These include electricity output rising just 0.7 per cent last month, when imports grew only 0.3 per cent, real estate sales were down 16 per cent, and new property construction was down 4.2 per cent. The Bank of China, the third-biggest of the state-owned "pillar" banks by assets, announced that its new loans fell 17 per cent in the first quarter, year-on-year. Deposits in Chinese banks as a whole fell by 0.5 per cent last month, according to the central bank. The People's Bank of China's announcement last weekend of a cut of half a percentage point in the reserve ratio requirement is unlikely, in such circumstances, to achieve its aim of freeing up further funding for banks to lend out. The tight controls over margins are driving lenders away now that alternatives are emerging. And if deposits keep falling, reserve ratios will have to keep falling too, just to maintain the amount of money available for lending out. Industrial production rose just 0.35 per cent in April from March, after increasing 1.22 per cent from February. And value-added industrial output rose 9.3 per cent in April from a year earlier, slowing sharply from a 11.9 per cent year-on-year increase in March. Retail sales increased 14.1 per cent in April from a year earlier, compared with a 15.2 per cent rise in March. UK risk-analysis firm Business Monitor International has forecast air-freight tonnage to increase by 4.4 per cent in China this year, Port of Shanghai throughput to rise by just 2.3 per cent, national road freight by 3.6 per cent and rail freight by 3.7 per cent. According to US cables revealed via Wikileaks, Li Keqiang, who is to become Premier said he used three core statistics to track the performance of the Chinese economy, rather than the bald growth figure: electricity consumption, rail-cargo volume and bank lending. Aggregating these three from the performance in the year so far, it is hard to see how China can reach anywhere near the 8.5 per cent overall growth the federal government's budget anticipates. "When you look at the trend lines, they are down: for instance, real estate, which accounts for a lot of the demand for steel and has especially benefited Australia, which has been perfectly positioned to feed China's investment boom of the past three years." Real estate comprises a quarter of China's fixed-asset investments, and half its GDP growth. But its sales are down this year and starts are either flat or down. The apparently contradictory 24 per cent lift in investment in real estate has come, he says, from "developers rushing to complete projects, to get into the market, cash out and pay off debts". Completions are up 33 per cent. Only 14 per cent of Chinese consumers say they are interested in buying property, the lowest rate since 1999, because they see that prices falling. Despite the common international perception, he says, "there are not many levers they can pull, and all of them come at a cost". China could pump money back in to reflate the asset bubble, he says, but the quality and value of the resulting infrastructure would be questionable. "There has always been a strong incentive for officials to overstate growth," he says. "But if growth is lower than the official figures, why have commodity prices stayed reasonably high?" One answer, he suspects, is the additional stock-piling of non-food commodities. He says 90 per cent of the copper held in warehouses in Shanghai is used for financing -- and if prices come down, there will be margin calls, and China will temporarily become a copper exporter. He says a slowdown is certainly under way in China, and reducing the reserve requirement -- as the country's central bank did on Saturday -- will not help much. "It is the loan quota that has been the real binding constraint, but that is now shifting so that demand (or the lack of it) is the new restraint on the economy."

China Daily:

• Chines State Councilor Dai Bingguo said China "won't be bullied" by a "small nation" like the Philippines.

Shanghai Daily:

• Shanghai's Growth Slows Again. SHANGHAI'S economic growth weakened further in April as exports, imports and fixed-asset investment all declined. The weak performance also nibbled away at industrial production growth in the first four months, the Shanghai Statistics Bureau said yesterday. With less inflationary pressure around the country, Shanghai, in particular, needs stimulus to boost its growth, analysts said. Exports fell 5.6 percent from a year earlier to US$16.3 billion last month, and imports were down 1.6 percent to US$18.2 billion. It was the first time since October 2009 that Shanghai had reported declines in both exports and imports, the bureau said. Fixed-asset investment in the first four months lost 0.4 percent to 122.3 billion yuan (US$19.4 billion), led by a cut of 25.8 percent in urban infrastructure construction investment. Industrial production also slumped 0.2 percent to 1.01 trillion yuan during the four months, compared with 0.7 percent expansion in the first quarter. "Shanghai's economic growth is weakening faster than feared," said Li Maoyu, a Changjiang Securities Co analyst.